November U.S. Employment, October Personal Income

The November Payroll Employment Survey showed a solid gain of 203,000 jobs.

The November Household Survey of Employment recovered from its October swoon, adding 818,000 jobs.

The Unemployment Rate for November decreased to 7.0 percent.

Real Disposable Personal Income fell by 0.2 percent in October.

Payroll jobs increased by 203,000 in November, following a 200,000 job gain in October. The separate household employment survey, which took a 735,000 job dive in October because of the government shutdown, recovered in November, adding 818,000 jobs. It is the household employment survey that feeds into the unemployment rate; so we saw a big improvement there as the unemployment rate dropped in November to 7.0 percent, after ticking up in October to 7.3 percent. The moderately strong job report, that confirms a labor market rebound from the October government shutdown, will bring the Federal Reserve one step closer to dialing down (tapering) quantitative easing. The last, and still absent, green light for QE tapering is a federal budget deal that extends the debt ceiling and removes the threat of a rating downgrade. That green light may not come before the next meeting of the Federal Open Market Committee (December 17/18). If we do get an early budget deal, then Chairman Bernanke could still make good on his intention to begin tapering this year and to complete it before the end of next year. Better-than-expected economic data is causing financial market jitters as investors ponder the increasing likelihood of a QE taper. We set the subjective probability of a December 18 taper announcement by the Fed at 33 percent. The January 28/29 meeting gets a 27 percent probability. March 18/19 gets 23 percent. After March gets a 17 percent subjective probability. These odd probability numbers are not meant to imply any precision, they are just relative weightings. The flat probability distribution is meant to convey the high degree of uncertainty in timing the taper.

Payroll job gains in November were broad based. Construction industries added 17,000 jobs. Manufacturing industries increased payrolls by 27,000, with gains in transportation equipment. Retail trade employment was up 22,300. Financial services lost 3,000 jobs for the month. Professional and business services employment was up by 35,000. Education and healthcare added 40,000 jobs. Leisure and hospitality industries added 17,000 jobs. Employment in the government sector was up by 7,000 jobs in November.

Real disposable personal income fell by 0.2 percent in October, influenced by gyrations in government employment. Not only were some government workers unpaid in early October, but also some came off of furloughs in August and July due to the budget sequester. So we can say that it is not a clean read. Real consumer spending increased by 0.3 percent for the month.

Market Reaction: U.S. equity markets are gaining. Treasury bond yields are up at the long end. NYMEX crude is up to $97.52/barrel. The dollar is up versus the yen and the euro.